ECON 201 Study Guide - Midterm Guide: Marginal Revenue, De Beers, Demand Curve
Document Summary
A firm is a monopoly if it is the sole seller of its product and if its product does not have a close substitutes. The fundamental cause to a monopoly is barriers to entry: a monopoly remains the only seller in its market b/c other firms cannot enter the market and compete with it. Key difference between a competitive firm and a monopoly is the monopoly"s ability to influence the price of its output. A competitive firm is small in relation to the market it operates and has no power over the price of its output. A monopoly can adjust the price of its good by adjusting the quantity it supplies. The market demand curve provides constraint on a monopoly"s ability to profit from it market power. It is a combination of price and quantity. A monopoly can move anywhere on the curve but not off it. Average revenue always equals the cost of the good.
